Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
5. Creating the Industry Structure
• Option 5: the state privatizes the separated rail-freight company, partially
or wholly; privatization variants include an initial public offering
(IPO), trade sale, or concession. If national capacity is sufficient to offer
and regulate access to the public rail network, privatization of rail freight
is entirely consistent with continued state ownership and control of the
railway network. Privatizing the public rail-freight operator on an exclusive
basis may be justified (variant in Box 5.5) if the market is insufficient
to support on-rail competition. But if freight-rail competition is favored,
a case can be made for a period of exclusivity before implementing a policy
of track access rights, which would allow enough time for a company
accustomed to public sector constraints to prepare for the rigors of competition.
• Option 6: introduce a degree of competition in the rail-freight market
through specific or general track access rights for qualified private freight
train operating companies. This option offers direct market competition
if justified by the scale of the freight market, but it can result in uneconomic
market fragmentation in countries with lower freight density. In
principle, third-party access rights can coexist with continuing public
sector rail freight operation; EU countries are an example. But, new private
operators can cherry pick the most profitable public operations,
leaving the public rail-freight operator with a financially unsustainable
traffic mix, in part because a public operator is less commercially agile
and has more institutional constraints. Instead, a more commercially rational
reform strategy is to first privatize the state rail company (option
5) and then introduce rail-freight competition (option 6). This would allow
the state to sell its ‘cherries’ before other operators are encouraged to
pick them.
• Option 7: cause a vertical separation of national railway infrastructure
from all the entities offering train services. Box 5.5 presumes prior separation
of local passenger services and rail freight, and would require corporate
separation of inter-city passenger services into one or more intercity
train operating companies. Horizontal separation of inter-city passenger
companies under public ownership may provide more commercial
independence and market focus. Also, establishing a free-standing rail
network company may provide a more independent and neutral framework
to administrate a fair and transparent track access regime, although
it is certainly not essential to implementing track access arrangements.
• Option 8: maximize the diversification of the public framework with
competition and private participation. Privatize inter-city passenger train
operations through franchise or concession—as a single operation, by region,
or by corridor.
Box 5.5 shows that public ownership and railway network control are compatible
with a diverse, market-oriented, competitive industry structure that has substantial
private participation. Box 5.5 shows that a coherent reform program can be
built from re-sequencing priorities and creating variants.
The World Bank Page 82